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Rating Action:

Moody's assigns Baa3 issuer rating to Amec Foster Wheeler Plc; stable outlook

22 May 2015

First-time rating assignment

London, 22 May 2015 -- Moody's Investors Service, ("Moody's") has today assigned a Baa3 issuer rating to Amec Foster Wheeler Plc (Amec). This is the first time that Moody's has assigned ratings to Amec. The outlook on the rating is stable. Concurrently, Moody's has assigned a provisional (P)Baa3 rating to Amec's EUR2 billion euro medium-term note (EMTN) programme, which is due to sign in the near future.

"The assigned Baa3 issuer rating reflects our view that Amec's diversification and focus on less cyclical downstream/chemicals and opex oil and gas exposure in mature regions should enable it to generate growing EBITDA and positive free cash flows despite the challenging market conditions and to reduce leverage in line with our expectations for the current rating by end-2016," says Roberto Pozzi, a Moody's Vice President - Senior Credit Officer and lead analyst for Amec.

RATINGS RATIONALE

Today's assignment of a Baa3 issuer rating reflects Amec's moderate business risk profile as a result of (1) the diversification of its activities across end-markets and geographies, with a high proportion of revenue and orders from less cyclical upstream opex and downstream/chemicals related orders; (2) high customer and project diversification with focus on small contracts; (3) focus on low-risk cost-plus, reimbursable contracts. These factors result in an historically stable operating performance and free cash flow generation.

The rating is constrained by (1) the highly cyclical nature of the company's end markets; (2) elevated leverage post-acquisition of Foster Wheeler, with Moody's adjusted leverage (debt to EBITDA) estimated at 3.9x, which positions the company initially weakly in the Baa3 rating category; and (3) a fairly aggressive financial policy, as evidenced by a dividend pay-out ratio around 50% and the recent partly debt-funded acquisition of Foster Wheeler. At the current rating level, Moody's expects that Amec will reduce leverage towards 3x by end-2015 and maintain an interest coverage ratio (EBITA to interest expenses, Moody's adjusted) above 5x.

Pro-forma for the acquisition of Foster Wheeler, Amec's end-markets include oil and gas upstream and downstream (54% of revenues), mining (8%), clean energy (E&C) (20%), and global power (GPG) (8%), environmental & infrastructure (10%). Reimbursable, cost-plus contracts represent approximately 80% of the company's orders backlog (in value), and only 20% are based on fixed-price contracts. Geographically, the backlog is split between the Americas (32%), North Europe & Commonwealth of Independent States (CIS) (36%), Africa Middle East Australia (AMEA) & Southern Europe (26%), and the remaining 6% reported under the Global Power division (mainly, steam generation).

The majority of the company's order backlog relates to downstream/chemicals and opex oil and gas exposure in mature regions, all of which are less sensitive to lower oil prices than oil and gas upstream capex related activities, and its business model is based on small and medium-sized contracts, generally on a cost-plus or reimbursable basis.

Management expects to spend $150 million to integrate Foster Wheeler, whose acquisition closed in November 2014, to achieve $125 million of cost savings by 2017, mainly through personnel reduction. Integration risks should be limited, as the two companies' business models are similar and management intends to minimize disruptions to the existing business.

The combined group had approximately GBP1.3 billion of gross reported debt at end-2014 and GBP516 million of cash on balance sheet. The company therefore maintains a significant cash balance and Moody's expects that free cash flow will remain robust. Amec also has access to two committed revolving credit facilities. The company has a GBP377 million core revolving credit facility due July 2017 (around a third of which is currently drawn) and a $350 million revolving credit facility due May 2016 (over half of which is currently drawn), which is used primarily for its letter of credit requirements.

RATIONALE FOR STABLE OUTLOOK

Amec is weakly positioned at Baa3 and the stable outlook reflects Moody's expectation that it will reduce leverage towards 3x by end-2015 from an estimated 3.9x pro-forma for the acquisition of Foster Wheeler at end-2014, predominantly driven by a subsequent improvement in EBITDA, an interest coverage ratio (EBITA to interest expenses, Moody's adjusted) of around 5x and good liquidity.

WHAT COULD CHANGE THE RATING UP/DOWN

Negative rating pressure could develop if Amec is unable to meet the expectations for the stable outlook (i.e., failure to improve its leverage towards 3.0x by end-2015, generation of negative free cash flows and deterioration of the current solid liquidity profile). Expectations of a deteriorating operating performance could also pressure the rating.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Construction Industry published in November 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in London, UK, Amec Foster Wheeler Plc provides consultancy, engineering and project management services to the oil and gas, mining, clean energy, environment and infrastructure markets. In January 2014, Amec announced the $3.3 billion (GBP2.0 billion) purchase of Foster Wheeler AG, an international engineering and project management contractor and power equipment supplier based in Reading, UK, thorough a mix of share and cash. The cash portion of the consideration amounted to GBP1.2 billion and was funded by new debt financing. Pro-forma for the acquisition, Amec will have revenues of around GBP5.8 billion and an orders backlog of GBP6.3 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Roberto Pozzi
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns Baa3 issuer rating to Amec Foster Wheeler Plc; stable outlook
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